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The Fine Print to NAR's Ad

Through much of 2009, the National Association of Realtors has been promoting a "public awareness" ad campaign – print and video – that expresses some optimism for the future of home prices.

That doesn't sound like news?

What if you knew that the central statistic in the NAR ads was old, like from a previous era?

The video version of the ad will play above. The print version of the "Buyer Strength" ad (downloadable here) is headlined:

8 OUT OF 10 ECONOMISTS BELIEVE HOME PRICES WILL RISE IN THE NEXT 5 YEARS.

THE OTHER TWO ARE LIFE-LONG PESSIMISTS.

That's right: Don't listen to those pessimists!

Let's take a look at the substance of the ad:

If you’re ready to buy a home, many signs point to favorable buying conditions: mortgages are available, affordability has improved, home choices are abundant and interest rates are low. Even better, 8 out of 10 economists agree that home prices will rise in the next ﬁve years. Which means getting in on the ground ﬂoor before prices begin to rise is a smart move. Homeownership is an investment in your future.

You'll find that "8 out of 10 economists" line in plenty of other places, too – it's a talking point that agents all over the country have incorporated into their spiels.

The print ad has a little footnote, saying the economists' opinions come from a 2008 survey by the Keller Center at Baylor University.

2008? Flashing yellow light.

When in 2008?

Here's what the authors of the Keller Center study had to say:

[I]t is worth noting that these survey responses came in July 2008, well before the turmoil in the financial markets of September 2008. We cannot know how the subsequent stock market decline and collapse of the investment banks would affect the answers reported above.

No, we cannot know what the same economists might have said in late 2008, or some time in 2009, instead of July 2008, but it's a safe bet their views may have been different.

And yet, this is the NAR's ad campaign for 2009. With money and muscle behind it.

It takes a good ad guy, and a client with some real chutzpah, to say, "Last year, before the financial markets collapsed, most economists thought home prices would rise," but to make that a snappy and compelling "buy now" message.

Gotta love the mad men.

Let's look a little deeper at the study. (Click here to view the [brief] Keller Center survey report.) It turns out that consensus in favor of price increases wasn't all that rosy. To the right is a table directly from the report.

Only 3 in 10 economists in the survey thought home prices would be more than 10% higher in 5 years.

The flipside: 7 in 10 did not think prices would be more than 10% higher in 5 years. Pessimists.

The report authors, to their credit, note that a slow pace of price growth like this could mean an actual real-dollar loss in value:

At that rate [less than 10% over 5 years], housing prices are unlikely to keep up with overall inflation, which has averaged 2.9 percent per year from 2002 to 2007 and was 5.4 percent from August 2007 to August 2008.

Here's something funny about the NAR ad campaign, though, and the survey backing it up. Despite last year's meltdown, nationally, people are now buying houses at a decent pace. (Various government subsidies have helped.) Prices have begun to stabilize and even rise, for a few months running now, according to the Case-Shiller index. (See this LA Times story.)

That makes another point of consensus in the economists' survey seem strangely apt, even if they were pontificating way back in July 2008:

[M]ost of the economists surveyed expect the market to bottom out no later than next year.... [A]lmost three-fourths expect housing prices to stabilize by the end of 2009, with just under half of the respondents expecting the bottom to be reached by the end of the second quarter of 2009.

Stabilization and a bottom in 2009 – that was edgy talk even last year. And yet now we see glimmers...

Of course, buyers' expectations for the future play a major role in their decisions to purchase. And it turns out recent buyers are much more bullish than the economists in that pre-meltdown survey.

Robert Shiller, the Yale economist who's half the Case-Shiller team, also runs surveys of people who have bought homes each year. He seems astonished at a sudden turnaround in buyer psychology this year. In a recent New York Times column, he wrote of his own survey data:

[In the 2008 survey] people ... made it clear that they thought a housing recovery would come as the recession ended, with a new president after the election, and after home prices have come back down. What has changed in 2009 is that they suddenly see this anticipated scenario as actually playing out.

Shiller appears to worry that some of the buyer enthusiasm he sees is misplaced, particularly the expectations of longer-term appreciation.

Buyers in 2009 were asked: “On average over the next 10 years, how much do you expect the value of your property to change each year?”

The average of all answers: 11.2% appreciation per year. The median answer: 5% per year.